Depreciation is a cash cow for farmers

Could you claim $149,187 from your rural property?

Rural properties can generate substantial depreciation deductions, as one owner of a dairy farm recently found out. From some typical assets discovered on the property BMT found $149,187 in depreciation deductions in the first full year.

The report revealed that investment intentions have strengthened among cotton, beef, lamb, summer grain and wool producers, while horticultural investment intentions are at their highest level to date.

Adding to the expected increase in production, the report projects that a significant proportion of farmers intend to spend more money on items used on their properties. 25 per cent of those surveyed nationally plan to purchase plant and equipment items, while 38 per cent planned to spend on fixed infrastructure.

While BMT Tax Depreciation experienced substantial growth in the number of depreciation schedules requested by agricultural property owners over the past two financial years (a 36 per cent increase during 2014-2015 and a 51 per cent increase during 2015-2016), many farmers are still failing to consult with a specialist Quantity Surveyor to ensure their claims are maximised.

Given that farmers can experience times of financial hardship (particularly during droughts, floods or fluctuations in the price of goods being sold) the additional cash flow that depreciation claims can deliver to rural property owners is often vital.

To demonstrate the difference that depreciation claims can make for farmers, we looked at how BMT helped the owner of one dairy farm.

The farmer purchased a property for $1.75 million and on settlement they requested a depreciation schedule. A detailed site inspection completed by our expert team discovered they could claim deductions for the assets outlined in the table. The table also shows the first full financial year deductions the dairy farmer could claim.

Dairy farm deductions

Asset

Cost

Depreciation rate

First full year deduction

Automatic milk line washing systems

$18,176

20%

$3,635

Automatic feeding system

$17,976

16.67%

$2,997

Cattle yards

$17,647

6.67%

$1,177

Dairy milking sheds

$58,627

6.67%

$3,910

Exercise yards

$1,765

10%

$177

Feed mixers

$25,882

28.57%

$7,394

Fences

$105,883

100%

$105,883

High pressure pumps and hoses

$3,185

20%

$637

Hot water services

$2,000

20%

$400

Manure spreaders

$4,353

20%

$871

Robotic milking systems (multi-box)

$49,824

20%

$9,965

Steel silos (used for fodder storage)

$13,129

33.33%

$4,376

Water troughs

$7,765

100%

$7,765

Total

$326,212

$149,187

Dairy farm deductions

Asset

Cost

Depreciation rate

First full year deduction

Automatic milk line washing systems

$18,176

20%

$3,635

Automatic feeding system

$17,976

16.67%

$2,997

Cattle yards

$17,647

6.67%

$1,177

Dairy milking sheds

$58,627

6.67%

$3,910

Exercise yards

$1,765

10%

$177

Feed mixers

$25,882

28.57%

$7,394

Fences

$105,883

100%

$105,883

High pressure pumps and hoses

$3,185

20%

$637

Hot water services

$2,000

20%

$400

Manure spreaders

$4,353

20%

$871

Robotic milking systems (multi-box)

$49,824

20%

$9,965

Steel silos (used for fodder storage)

$13,129

33.33%

$4,376

Water troughs

$7,765

100%

$7,765

Total

$326,212

$149,187

Assumptions and disclaimer

The depreciation deductions in this example have been calculated using the diminishing value method. An immediate write-off has been applied to fences and water troughs.
Silos have also been depreciated over three years as per the accelerated depreciation concessions outlined in the 2015-2016 federal budget for primary producers.
The owner of this farm was not classified as a small business.

In the first full financial year alone, BMT found $149,187 in depreciation deductions for the assets listed.

The dairy farm owner is also entitled to claim additional capital works deductions for the barn and a homestead.

In total, the owner of a typical dairy farm with these assets and structures could expect to claim between $850,000 and $1.1 million over the life of the property.

Incentives outlined in the 2015 budget for primary producers mean that farmers are entitled to write-off a number of assets immediately. This includes fences, dams, tanks and irrigation channels. However, the Australian Taxation Office does stipulate additional rules if owners are depreciating second-hand assets.

It is therefore essential to seek expert advice and to obtain a comprehensive depreciation schedule to ensure deductions are correct and maximised based on the individual circumstances and requirements of the property owner.